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Court Rules Fidelity Breached Erisa in Its Own 401(k)

March 31, 2020

A Boston federal court judge ruled that Fidelity was in breach of the Employee Retirement Income Security Act because it failed to properly monitor its own 401(k) plan, according to news reports.

U.S. District Judge William Young of the U.S. District Court for the District of Massachusetts ruled that the company breached its duty of prudence under Erisa because it insufficiently monitored the 401(k)’s mutual fund investments and recordkeeping expenses, FA-IQ sister publication Ignites writes, citing an order issued Friday.

The case involves a suit filed in 2018 accusing Fidelity of stuffing the plan with proprietary products to boost its profits, according to Ignites. In Friday’s order, Young rules that the plaintiffs are entitled to "any profits traceable" to the Erisa breach and that the exact amount should be determined at trial, the publication writes.

"At trial, the plaintiffs will bear the burden of proving the extent of any losses, and Fidelity will bear the burden of proving that any losses to the plan were not caused by the lack of monitoring," according to the order cited by Ignites.

A Fidelity spokesman tells the publication that the firm disagrees with the opinion and that the “case is far from over.”

Last week, the Boston federal court cleared Fidelity on the claims that it breached its duty of prudence in regard to alternatives to the plan’s funds and its duty of loyalty related to high recordkeeping expenses, as well as a claim of prohibited transactions related to proprietary products, according to Ignites.

Young had ruled in October against a trial to determine whether Fidelity was liable, ruling that the material facts were not in dispute, according to Ignites.

Fidelity is the target of another 401(k)-related lawsuit, filed in the Southern District of Texas in January by four participants in Shell’s 401(k) plan, for which Fidelity is the recordkeeper. That suit claims that Fidelity improperly used plan participants’ confidential data to market financial products and services that were not part of the plan.

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By Alex Padalka
  • To read the Ignites article cited in this story, click here if you have a paid subscription.
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Tags:  ERISA plans/institutional management , Fees and compensation , Staffing and recruiting , Retirement planning , Fidelity

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